Banking reporter

Banks are making bigger profits from writing new mortgages today than at any time since 2004, putting intense pressure on lenders to cut interest rates independently of the Reserve Bank, new research suggests.

Given this increase in profits, Mr Mott also said there was a real risk of political interference if the banks did not pass a fall in costs on to their customers.

Macquarie's banking analyst, Mike Wiblin, also argued last week that profit growth caused by holding back official rate cuts was not sustainable in an election year.

The rapid turnaround in profits has come from falling wholesale funding costs and the banks' decision to only pass on official rate cuts in part.

At the same time, however, Mr Mott's analysis suggested banks were losing money from term deposits, which they are chasing to new liquidity rules designed to make banks safer.

The nation's biggest lender, the Commonwealth Bank, posted a record $3.78 billion half-year profit this month, underpinned by 13 per cent profit growth in its flagship retail lending business.

ANZ, NAB and Bendigo and Adelaide Bank have also reported wider profit margins from consumer lending.

CommBank's chief executive, Ian Narev, said this month that he expected wholesale funding costs to peak this year, but the bank was still facing competition in the market for deposits.

12 comments so far

In February 2012 the CBA made a 0.1% out of cycle rate rise on my mortgage because of rising international funding costs. If conditions improve and that extra 0.1% is no longer warranted then I expect a cut. The alternative the CBA has is losing me as a customer completely when I move to another bank. The choice is theirs.

Commenter

Michael

Location

Adelaide

Date and time

February 25, 2013, 2:31PM

Why has the Australian media got a fascination about bashing the banks about interest rates all the time?

Come on get over it!

I would as many Australians prefer a sound banking system so we don't end up like the US or most of Europe.And now every Australian is depending on their super to continue growing for retirement, if the big 4 go belly up you can kiss goodbye to any retirement lifestyle as the super would reduce by about 50%.

Better to be carefull in what you are actually whishing for eh?

Commenter

Kenny

Location

Sydney

Date and time

February 25, 2013, 2:38PM

Allowing profiteering by jacking up rates does not create "sound banking system" as it sends banks down slippery path of ripping off customers. They supposed to increase their profits by doing more business instead.

At the moment banks making record profits while doing record low levels of lending, especially for the business.

They shall be made subject to hefty "super profits" tax.

Commenter

dinkumnet

Location

dinkumnet.com

Date and time

February 25, 2013, 3:28PM

Banks cutting rates out of cycle with the RBA would be really nice, but unfortuantely this is from a third party report, the banks themselves are saying something completely different. They even said so themselves about a week ago. As long as the banks have a monopoly in the market they will continue to charge as they see fit.

Commenter

Finance broker

Location

Date and time

February 25, 2013, 2:57PM

Ian Nareev was interviewed last week specifically noting that nominal rates were lower now but given the timing of funding requirements average costs of funding were still higher. If what he says is correct then you would expect the banks get in to a position to logically cut at least in step with the RBA by around the end off the year or this time next year as funding tranches reach term. Of course that is dependent on what people do with their funds since deposits are not growing so much now with lower rates. They are also under pressure from Basel requirements where things like RMBS shoddy loan books are not considered tier 1 capital and rightfully so. The savers deposit is as important as ever for them and they are still likely to make the borrower pay for that safety net in their funding mix in my opinion.

Commenter

Alan

Location

Sydney

Date and time

February 25, 2013, 3:34PM

Monopoly would suggest there was only one bank, oligopoly would be the correct term. That being said, there are many options beyond the big four, so this doesn't really apply either...

Commenter

FanFan

Location

Date and time

February 25, 2013, 3:42PM

Make no mistake, the banks will charge as much as market will bear.

Commenter

Lunatic Fringe

Location

Date and time

February 25, 2013, 3:18PM

Don't mortgage rates always just end up wherever the RBA wants them? I'm sure Glenn will let borrowers know if he reckons they're getting too excited, and it's time to come off the emergency lows.